Justice Watch: The Alliance for Justice Blog

November 2011

A new study shows that the heightened pleading standard established by the Supreme Court in Bell Atlantic v. Twombly (2007) and Ashcroft v. Iqbal (2009) is preventing ordinary Americans from having their day in court.

For fifty years, plaintiffs were required only to plead a “short plain statement” of facts, under Conley v. Gibson (1957), in order to reach the discovery stage of litigation. The ability to conduct discovery is a crucial component of access to justice, because defendants often possess the evidence that plaintiffs need to prove their cases.

In Twombly and Iqbal, the Roberts Court introduced a stricter “plausibility” standard, requiring a plaintiff to plead factual content from which a court can draw the reasonable inference that the defendant is liable for the misconduct alleged. If a plaintiff is not able to plead sufficient facts to convince the court to allow her claims to proceed, she will never be able to conduct the discovery that might have led to that factual information.

In the face of widespread criticism of the new pleading standard, defenders of the Court’s rulings have pointed to a study published by the Federal Judicial Center in March 2011 that reported no increase in the rate at which federal judges grantedg motions to dismiss without leave to amend in the wake of Iqbal and Twombley.

However, a new study by Jonah Gelbach, forthcoming in the Yale Law Journal, indicates that simply comparing dismissal rates pre- and post-Twombly and Iqbal does not reveal the true effects of those decisions. Rather, Gelbach highlights that defendants are 50 percent more likely to file a motion to dismiss post-Twombly and Iqbal, presumably because they recognize that the heightened pleading standard increases their chances of getting the claims against them dismissed. Thus, even if the overall dismissal rate has not changed, a higher percentage of cases are being dismissed. Gelbach concludes that 20 percent more cases are dismissed before discovery can be conducted under Twombly/Iqbal than were dismissed under Conley.

The Senate has confirmed Judge Christopher Droney to the United States Second Circuit Court of Appeals by a bipartisan vote of 88-0.

President Obama nominated Droney to the seat on May 4, 2011; on July 21 he was reported out of the Senate Judiciary Committee by a unanimous voice vote. From the date of his nomination, he has been waiting 209 days to be confirmed to fill his seat, which has been labeled a judicial emergency by the Administrative Office of the U.S. Courts.

The Senate’s action leaves 22 other judicial nominees waiting on the floor for their confirmation votes, 20 of whom were reported out of committee either unanimously or with strong bipartisan support.

Tomorrow the Supreme Court will hear argument in the case of Credit Suisse Securities v. Simmonds. The case arises out of a series of Initial Public Offerings (IPOs) during the tech bubble of the late 1990s. The plaintiff, Vanessa Simmonds, was an investor who owned tech stocks underwritten by Credit Suisse and other investment banks. Simmonds alleges that underwriters for these IPOs manipulated stock prices using short-swing transactions in violation of the insider trading laws.

The main issue before the Supreme Court will be when the insider trading law’s two-year time limit to bring suits begins to run: when the profit is realized by insiders or when the required public disclosures are filed.

Credit Suisse argues that actions must be brought within two years of the profits being realized and therefore Simmonds’ suit is time-barred. Simmonds argues that because insiders never filed the required disclosures when the profit was realized, the two-year limitations period never began to run. The district court dismissed the complaint on the grounds that the two-year limit had expired, but the Ninth Circuit agreed with Simmonds and reversed.

If the Supreme Court finds that the suit was time-barred, corporate insiders will be able to avoid liability for their illegal insider trading activity by violating the disclosure requirement.

On Monday, the Supreme Court will hear argument in the case of Mims v. Arrow Financial Services. Arrow Financial Services (“Arrow”) is an originator, servicer, and collector of private student loans. Marcus Mims claims that Arrow harassed him about student loan payments by repeatedly calling his cell phone with an automated dialing system and leaving prerecorded voicemails. Mims sued in federal district court and argued that Arrow’s activity violated the Telephone Consumer Protection Act (TCPA), a statute passed by Congress to restrict the ability of companies to harass consumers over the phone. The district court dismissed the complaint and the Eleventh Circuit upheld the dismissal on the grounds that Congress gave state courts exclusive jurisdiction over TCPA lawsuits and that, therefore, federal courts lack subject matter jurisdiction. The Supreme Court granted Mims’ appeal.

A brief filed by the National Association of Consumer Advocates (an AFJ member organization) and the National Consumer Law Center states that, “[n]otwithstanding Congress’s clearly stated intentions, extensive non-compliance by national and international telemarketing and related industries under the Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA) is not at all uncommon.” The organizations added that “this unfortunate state of affairs is the failure of the TCPA’s private right of action, § 227(b)(3), to provide the vigorous enforcement and effective deterrence mechanism that Congress envisioned when it adopted this law.”

The result of the Eleventh Circuit’s rule, according to the brief, is that differing state standards apply to the TCPA that unfairly disadvantage some state residents. “Differences in degrees of federal consumer protection based on state residency are unacceptable; that the TCPA’s minimal standards of privacy are unenforceable now in at least two states – Maryland and Texas – is a result that should attain only with the explicit and unambiguous Congressional approval that is lacking here.”

If the Supreme Court sides with Arrow, consumers will be far less capable of holding companies accountable for unlawful telephone harassment in federal court and might enjoy weaker consumer protections based on the state in which they live.